Cash Rents to Increase in 2012 with Production Costs, Incomes

Source: Purdue University Extension | Sep 21, 2011

The amount farmers pay to rent farmland will be on the rise again in 2012 as Indiana corn[2] and soybean[3] prices generate higher farm incomes. According to Purdue Extension[4] agricultural economist Craig Dobbins, the 13% increase in cash rents in 2011 is the third largest in the 37-year history of the Purdue Farmland Survey[5], and many of the forces behind the increase are still in place.

"The domestic and international demand for U.S. corn and soybeans is expected to remain strong, and the USDA[6] projects average 2011-2012 corn and soybean prices will exceed the 2010-2011 prices," he says.

Because of the high grain prices, Indiana farmers have the potential for a record 2011 farm income. Although farmers are expected to pay more for fertilizer[7], pesticides[8], seed[9] and fuel in the coming year to plant and grow their crops, Dobbins says the increase in grain prices has been larger. Interest rates also are likely to remain low.

Combine all of those factors and what is likely to happen is strong upward movement in cash rent prices.

"On average, it would not be surprising to see cash rents increase as much as they did in 2011," Dobbins says. "How much cash rents change in specific situations will depend, in part, on what changes have already occurred."

Rainfall variations around the state and the effect on yields also will drive cash rents. If an individual cash rent has increased over the past five years and yields this year are poor, there may only be a small change in cash rent for 2012.

But Dobbins says if the cash rent has been stable because of a long-term lease or other reasons and yields are close to average, the increase could be large.

Since 2007, changes in cash rents reported to the Purdue Farmland Survey have been what Dobbins calls "unusually variable." Between 2007 and 2011, statewide cash rent for average land increased anywhere from 0.6% to 13%. During the previous five-year period of 2002-2006, cash rent increases varied from 0.8% to 3.4%.

"In this volatile environment, it is important for the landlord and tenant to have a detailed discussion about yield, price and cost forecasts to establish the 2012 cash rent," he says.